SpreadBachelier: Spread option under the Bachelier model

In FER: Financial Engineering in R

Description

The payout of the spread option is max(S1_T - S2_T - K, 0) where S1_T and S2_T are the prices at expiry T of assets 1 and 2 respectively and K is the strike price.

Usage

SpreadBachelier(
  strike = 0,
  spot1,
  spot2,
  texp = 1,
  sigma1,
  sigma2,
  corr,
  intr = 0,
  divr1 = 0,
  divr2 = 0,
  cp = 1L,
  forward1 = spot1 * exp(-divr1 * texp)/df,
  forward2 = spot2 * exp(-divr2 * texp)/df,
  df = exp(-intr * texp)
)

Arguments

strike	(vector of) strike price
spot1	(vector of) spot price of asset 1
spot2	(vector of) spot price of asset 2
texp	(vector of) time to expiry
sigma1	(vector of) Bachelier volatility of asset 1
sigma2	(vector of) Bachelier volatility of asset 2
corr	correlation
intr	interest rate
divr1	dividend rate of asset 1
divr2	dividend rate of asset 2
cp	call/put sign. 1 for call, -1 for put.
forward1	forward price of asset 1. If given, overrides spot1
forward2	forward price of asset 2. If given, overrides spot2
df	discount factor. If given, df overrides intr

Value

option price

Examples

FER::SpreadBachelier((-2:2)*10, 100, 120, 1.3, 20, 36, -0.5)

FER documentation built on March 5, 2021, 5:06 p.m.